FALLOUT FROM THE FAIR HOUSING PLAN
BEN MYERS, BULLPEN RESEARCH & CONSULTING
The first four months in 2017’s Greater Toronto Area (GTA) resale housing market were nuts, and in hindsight, a bubble was clearly forming. On average, prices rose from about $730,000 to $920,000 during this period, and investors were buying anything they could get their hands on. End-users were forced to up their bids well beyond their budgets to avoid getting “priced out forever”.
Houses Selling Above Asking Price
At that time, I was trying to determine the appropriate values for an infill housing development in Thornhill. I couldn’t locate any appropriate new home comparables, so I asked an agent to pull some recent trades in the area. I was shocked to discover single-detached homes selling for $200,000 to $400,000 over-asking on half of the sales, and even a couple of homes that sold for $800,000 over the asking price!
In early April, a friend of mine that was planning a move from Toronto to Collingwood asked if he should wait to sell his home. I advised him to sell it right away, as the government was going to make changes to the housing market, and a big disruption was coming. He sold for well above asking on April 15th, five days before the Fair Housing Plan (FHP) was announced.
Ontario’s Fair Housing Plan
Having witnessed a housing market bubble and major meltdown in the United States, the Ontario government wasn’t going to wait around for more information, and quickly put a plan in place to disrupt the rapid price escalation. On April 20th, 2017, Finance Minister Charles Sousa and Premier of Ontario Kathleen Wynne introduced the Fair Housing Plan, 16 measures to cool the market and bring stability back to home prices and rental rates. The fever had already started to die down at the time of the April announcement, but these measures resulted in an almost immediate pullback by prospective buyers in the resale market, and a more lagged response in the low-rise new housing market.
York Region Single-Detached Market Hit Hard
The brunt of the negative sentiment and buyer pull-back was felt by the single-detached housing market in York Region, and by new single-family developments across the GTA, which had seen prices rise nearly 45 per cent annually by April. Interest from move-up buyers with existing homes to sell died off, and investors that had recently taken to low-rise housing as an investment vehicle stopped buying completely.
In the inaugural Residential Real Estate Round Up Report by Bullpen Consulting and BuzzBuzzHome, we compared the change in online “leads” data year-over-year, and it showed just how quickly the mindset of buyers changed in the ownership market. When comparing the number of leads for each buyer/renter category by month for 2016 and 2017, it showed that investor interest had nearly tripled in March 2017 when compared to a year earlier but dropped off almost immediately in May after the Fair Housing Plan was announced.
With rent control announced and a decrease in ownership interest, leads for prospective tenants on BuzzBuzzHome’s website actually increased, and they spiked considerably in July and August in comparison to a year earlier.
Impact of the Foreign Buyers Tax
One of the measures of the FHP that garnered the most attention was the new foreign buyers tax. Vancouver implemented their own such tax in 2016 and witnessed a sharp, though short-lived, price decline. Several organizations have attempted to estimate the number of homes purchased by non-residents in Canada and Toronto, including Statistics Canada, CMHC and the Toronto Real Estate Board. Most estimates indicate that about five per cent of the existing stock is owned by non-Canadians, with around 10 per cent ownership of recently completed units. In terms of online searches on BuzzBuzzHome, the share is much lower. In December 2017, the largest share of their web traffic was from India at 0.47 per cent, followed by Hong Kong at 0.45 per cent, and the United Kingdom at 0.35 per cent. China accounted for 0.11 per cent, but traffic has fallen 41 per cent annually for Chinese users in December, suggesting the tax may have influenced their future purchasing behaviour.
Although online investor interest has declined, and sales and pricing of single-family housing in the suburbs have dramatically decreased, condominium apartment activity remains as robust as ever. In January, the Altus Group reported another record year for new condominium sales with over 35,000 transactions in 2017. Urbanation Inc. indicated that unsold prices on a per-square-foot basis in the GTA are up 35 per cent for new condos. January data from the Toronto Real Estate Board showed that resale condo price inflation was 15 per cent in the 416 area and 11 per cent in the 905.
Resale Condominium Market
Much of the activity that occurs in the resale condominium apartment market comes from first-time buyers who are unconcerned about the impact of the Fair Housing Plan, since they don’t already own a home that would be affected. Secondly, the mortgage rule changes implemented in 2016 for buyers with less than a 20 per cent down payment prevented many first-timers from considering a semi-detached or townhouse property, keeping the demand in the high-rise market. A third factor was a lack of new condo supply, it sounds crazy if you look at all the cranes in the sky, but the GTA probably needs 25,000 to 30,000 new condos to satisfy demand. Because there was a weak pre-construction condo market in 2013, four years later you get less than 20,000 new condo completions in 2017, and fewer new units for residents to buy and rent. Lastly, interest rates are going up, which hurts a purchaser’s buying power, keeping them in the condo market. So why are rates going up? Because the economy is doing well, the population is growing, thousands of jobs are being added to the GTA every month, and those people need places to live.
A Unique Housing Market
I have to say that this is the weirdest market I’ve ever had to analyze. One product type, especially in one region is doing exceedingly poor, while another product type in another region is selling and growing in value as much as it ever has. With more interest rate hikes to come, and mortgage renewals having a new stress test applied, things might get even crazier. More than ever, I believe prospective home buyers should be working with an agent who has intimate knowledge of the desired neighbourhood-level housing market, since metro-level and municipal-level trends are not telling the whole story. This market is hyper-local. Do your research, hire an expert and good luck.
Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with land owners, developers and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects.
Follow Bullpen on Twitter at @BullpenConsult or find Ben at www.BullpenConsulting.ca.
